I was only covering the definition of tariffs which are exclusively monetary barriers. That’s why they are simple to describe by a straight percentage of the cost of the imported goods and paid by the purchaser of foreign goods to their own government.
Non-monetary barriers can take more diverse forms but they’re not tariffs. They are to be considered in trade imbalances but less simple to summarize in bite-size form. How do you describe and account for the impact of US banning export of AI chips to China, or country-specific regulations making some drugs or meats illegal in some countries and legal to import elsewhere?
President Trump announces on TruthSocial that the US is terminating all trade discussions with his northern neighbor due to Carney putting a tax on US tech firms (like Europe):
"We have just been informed that Canada, a very difficult Country to TRADE with, including the fact that they have charged our Farmers as much as 400% Tariffs, for years, on Dairy Products, has just announced that they are putting a Digital Services Tax on our American Technology Companies, which is a direct and blatant attack on our Country.
They are obviously copying the European Union, which has done the same thing, and is currently under discussion with us, also.
Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.
We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period. Thank you for your attention to this matter!"
Wondering if other folks have noticed the recent decline in the $ vs. € exchange rate. Not that long ago it was $1.12 to 1€. Now it’s about $1.17 to 1€. Is that part of the upcoming tariff effect? Sort of tariffs replaced by some degree of currency devaluation?
Also, any idea why the 10-year Treasury is falling while the deficit is projected to grow once the Big Beautiful Bill passes? I thought higher deficits would translate into higher rates.
I think it’s due to high demand (pushing for lower yields) for US treasuries more than balancing high inflation expectations due to deficits and tariffs (pushing for higher yields). But I’m not sure why there is increased demand for US treasuries.
I mistrust the current administration more than prior ones, except that a bad jobs report would have been what Trump wanted. A higher unemployment rate would help Trump claim that current Fed rates are too high, and Powell is asleep at the wheel.
Why always “seasonally adjusted”? Considering seasonal effects should be baked into expectations, but the data is what it is and should be reported/tallied as such.
CPI for June running at +0.3%, or +3.7% annualized.
US JUNE CONSUMER PRICES RISE 0.3% M/M; EST. +0.3%
US JUNE CONSUMER PRICES RISE 2.7% Y/Y; EST. +2.6%
US JUNE CORE CPI RISES 2.9% Y/Y; EST. +2.9%
Market reaction
TREASURIES RISE AFTER JUNE CORE CPI RISES LESS THAN ESTIMATED
Commentary
On a M/M basis, headline was inline at +0.3% while core was a tiny bit cooler at +0.2% (vs. the Street +0.3%). The core +0.2% being a bit lower probably will qualify the CPI was “not as bad as feared” over the course of trading.
Energy was a big source of inflation, w/a 0.9% M/M rise following the sharp 1% drop in May. Food prices advanced 0.3% M/M, same as in May.
Areas of disinflation/deflation included new vehicles (-0.3%), used vehicles (-0.7%), airline fares (-0.1%), hotels (-3.6%), motor vehicle insurance (+0.1% M/M), eggs (-7.4%), and drugs (+0.1%).
Areas of inflation included apparel (+0.4%), medical care services (+0.6%), home furnishings/supplies (+1%), appliances (+1.9%), footwear (+0.7%), sporting goods (+1.8%), toys (+1.8%), and care and truck rental (+3.2%). Shelter came in +0.2% M/M, a modest downtick vs. +0.3% in May, with OER +0.3% (same as in May).
What does this mean? Overall, this CPI report is very much “inline”. Some of the categories exposed to tariffs (apparel, home furnishings, appliances, footwear, and toys) def. saw some upward pressure, while others (like autos) did not. Shelter was more or less inline, although there does seem to be downward forces at work in housing. Travel is facing a price headwind at the moment, with further pressure in airfares and (especially) hotels.
But I wonder whether the usual link between lower rates and higher inflation will still materialize as usual if inflation is not created by increased money supply but by import tax?
I don’t think it’ll be a straight repeat of 2022 when people had lots of money to burn from COVID savings + government handouts.
For one, job market is tighter now than it was 3 years ago. And with many experiencing an income tax cut, import tax may potentially not be felt as badly and thus may not require a significant bump in wages.
